An econometric analysis of the impact of local business service centres on small, medium and micro e

Volume 4, Number 1

An econometric analysis of the impact of local business service centres on small, medium and micro enterprises in the Eastern Cape, South Africa

Ncwadi, R.

The small business sector is considered a panacea to the South African economy. To boost this sector, local business service centres (LBSCs) were established to provide assistance to small, medium and micro enterprises (SMMEs). LBSCs provide a variety of real and appropriate services to SMMEs, including business information, general business management advice and counselling, aftercare, and networking to other service providers. Government efforts to establish a support structure for the small business sector in South Africa has not been successful. The failure rate of SMMEs is between 70% and 80% and millions of rand are being lost. The SMMEs’ failure despite the LBSCs’ support is a matter of serious concern in South Africa to the extent that there is widespread belief that the LBSCs are ineffective. It is thus important to assess the economic impact of LBSCs on the SMMEs. The study’s findings suggest that the LBSCs contributed to social welfare through job creation and relative increases in income. However, the benefits derived from public investment in SMMEs − through the LBSCs − were sub-optimal: a number of factors inhibited SMMEs during the period under review despite the interventions of LBSCs.

Keywords: Entrepreneurship; small business sector; local business service centres (LBSCs); small, medium and micro enterprises (SMMEs)